Average labour market indicators mask "two-speed" Latvia

Unemployment in Latvia continues on a downward trend. Although it seemed logical to expect more moderate dynamics of labour market indicators following the quite strong data reported for the third quarter of 2017, the data for the fourth quarter likewise surprised positively with a fast decline in unemployment (to 8.1% of the economically active population).

At the same time, over the year the unemployment rate has shrunk by impressive 1.2 percentage points. This was driven by the most buoyant economic growth recorded over the last six years, partly reflecting larger inflows from the European Union (EU) structural funds. As economic growth moderates, the decline in unemployment will also slow down in the coming quarters. Unemployment rate is expected to remain slightly above 8% in 2018 on average.

Overall, since the restoration of Latvia's independence (excluding the short period of economic overheating (2006–2007)), Latvia's labour market has not been as favourable to employees as it is now. For instance, the share of employed working age persons is historically high, exceeding the EU average.

However, these average indicators mask "two-speed" Latvia. At the time when one part of the population complains about labour shortages, economic overheating, remuneration increases exceeding labour productivity or excessively rapid rises in the minimum wage, the other one is only totally surprised about the statistics for average indicators, without seeing a rise in prosperity in their families. For instance, every fifth working age person has been officially assigned the status of unemployed person in some districts of Latgale. It means that the actual unemployment rate in some districts (as a percentage of the economically active population including also the unregistered unemployed) is close to 30%. And these data refer to the present moment rather than to the peak of the crisis (2009–2010) as someone could think.

The structural policy, namely, the work with particular districts and population groups, is required to address structural issues (not only money transfers or social benefits). Supportive monetary policy (an era of low interest rates) may complement structural reforms, but not replace them. For instance, regardless of how low the interest rates are, Latvia will anyway experience a lack of investment in the absence of profitable investment project ideas or if businesses find the business environment abroad better.